Question Unit 3 finance – Corporation finance – 10 finance Questions Superior Medical System’s 2005 balance sheet showed total common equity of $2,050,000. The company had 100,000 shares of stock outstanding which sold at a price of $57.25 per share. By how much did the firm’s market value and book value per share differ? Madison Metals recently reported $9,000 of sales, $6,000 of operating costs other than depreciation, and $1,500 of depreciation. The company had no amortization charges and no non-operating income. It had issued $4,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate was 40%. What was the firm’s taxable, or pre-tax, income? Fine Breads Inc. paid out $26,000 common dividends during 2005, and it ended the year with $150,000 of retained earnings. The prior year’s retained earnings were $145,000. What was the firm’s 2005 net income? Raleigh Corp’s total common equity at the end of last year was $300,000 and its net income after taxes was $55,000. What was its ROE? Rutland Corp’s stock price at the end of last year was $30.25 and its earnings per share for the year were $2.45. What was its P/E ratio? Cooper Inc’s latest EPS was $4.00, its book value per share was $20.00, it had 200,000 shares outstanding, and its debt ratio was 40%. How much debt was outstanding? Burger Corp has $500,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $600,000, and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would Burger need in order to achieve the 15% ROE, holding everything else constant? Last year Charter Corp. had sales of $300,000, operating costs of $265,000, and year-end assets of $200,000. The debt-to-total-assets ratio was 25%, the interest rate on the debt was 10%, and the firm’s tax rate was 35%. The new CFO wants to see how the ROE would have been affected if the firm had used a 60% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant. By how much would the ROE change in response to the change in the capital structure? 9. Financial statements are based on generally accepted accounting principles (GAAP) and audited by CPA firm, so do investors need to worry about the validity of those statements? Explain your answer. 10. Distinguished Scholar Assignment Unit 3In Doc Sharing you will find two files related to this assignment. First, there is an Excel spreadsheet that includes the financial statements of MT 217 Corporation and other key information. The other Unit 3 DS document is a template on which you will complete this assignment. It includes most of the key ratios we are studying this week. Once you have found the financial statements and the template, you will calculate the financial ratios found on the template and submit that template to the Drop Box by the end of the Unit.
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